Arbitration agreement

Arbitrability

Are there any types of disputes that are not arbitrable?

Articles 2 and 3 of the Arbitration Law are the primary legal resources dealing with the issue of arbitrability. Both contractual and other disputes related to property are arbitrable if they occur between parties on an equal footing, related to economic interest and covered by an arbitration agreement.

Under the Arbitration Law, the non-arbitrable subject matter are disputes over marriage, adoption, guardianship, child maintenance and inheritance, and administrative disputes falling within the jurisdiction of the relevant administrative organs according to law (article 3).

Disputes over the validity of a registered trademark or patent, disputes relating to monopoly agreement and disputes concerning ‘administrative contracts’, being contracts between a private entity and a government entity with governmental power and including contracts for public-private partnership (PPP) and land use right transfer, are not arbitrable according to judicial interpretations and cases rendered by the Chinese courts. However, disputes over copyrights and securities transactions may be resolved through arbitration.

Requirements

What formal and other requirements exist for an arbitration agreement?

The Arbitration Law provides that an arbitration agreement shall not be made orally and it must be in writing. The Contract Law (1999) stipulates that ‘in writing’ means a contract, letter or electronic message that is capable of expressing its contents in a tangible form (article 11). Incorporating an arbitration clause existing in another document, or standing general terms and conditions, can serve to satisfy the ‘in writing’ requirement. An arbitral award made with no written arbitration agreement is exposed to the risk of non-enforcement or being set aside.

Failure to meet the formal requirement of the arbitration agreement can sometimes be cured if the party who could raise an objection does not object (for example, article 5 of the 2015 CIETAC Rules). When local or state entities engage in commercial transactions and conclude arbitration agreements, they are treated as parties on equal footing with their counterparts; therefore, no requirement for co-signing or approval is imposed.

Enforceability

In what circumstances is an arbitration agreement no longer enforceable?

If the law applicable to an arbitration agreement is mainland Chinese law, an arbitration agreement must satisfy the statutory requirements to be valid and enforceable. Article 16 of the Arbitration Law specifies that an arbitration agreement must contain the following three elements:

  • an intention to submit disputes to arbitration;
  • the matters to be arbitrated; and
  • the designation of an ‘arbitration commission’ to resolve the dispute.

 

Accordingly, mainland Chinese law and practice have developed the following doctrines, under which an arbitration agreement will be deemed as invalid, non-enforceable or no longer binding:

  • the arbitration agreement designates no institution or two institutions, in the latter case no supplemental agreement can be reached;
  • the arbitration agreement itself is avoided, rescinded or terminated by a party or the parties; however, the avoidance, rescission, or termination of the underlying contract is without prejudice to the validity of the arbitration agreement;
  • with regard to the insolvency, the Bankruptcy Law (2006) recognises that the bankruptcy administrator may continue on behalf of the bankrupt enterprise to participate in arbitration proceedings that are started before the application for bankruptcy is accepted by the people’s court;
  • the bankruptcy administrator is entitled to apply for setting-aside of an arbitral award (article 7 of the Judicial Interpretation to Bankrupt Law (III));
  • according to the Interpretation of the Arbitration Law (2008), after the decease of a party, the arbitration agreement is still binding on his or her successor in interests (article 8); and
  • either or both parties to the arbitration agreement are incapable or restricted in civil acts.

 

Due to historical misunderstanding of ‘hybrid arbitration’, arbitration clauses rendered before 2012 selecting the ICC Arbitration Rules without specifically designating ICC, are not regarded as having selected ICC as administering institution, which has led to the invalidation of several arbitration agreements and non-enforcement of ICC awards. 

Separability

Are there any provisions on the separability of arbitration agreements from the main agreement?

The doctrine of separability of arbitration agreement is adopted by article 19 of the Arbitration Law, which provides that an arbitration agreement shall exist independently, and that any changes to, rescission, termination or invalidity of the underlying contract shall not affect the validity of the arbitration agreement.

The latest judicial decision made by the International Commercial Court of the SPC confirmed that the doctrine of separability applies to the issue of formal validity, so an arbitration agreement can be reached by exchange of draft contracts, even the underlying contract is not properly formed.

Third parties – bound by arbitration agreement

In which instances can third parties or non-signatories be bound by an arbitration agreement?

Generally, third parties are not bound by an arbitration agreement under mainland Chinese law except in the following circumstances:

  • assignment of rights or obligations: the arbitration agreement shall have a binding force upon the assignee;
  • merging or splitting of an entity: the arbitration agreement shall be binding upon the successor;
  • decease of a party: the arbitration agreement shall be binding upon the inheritor who inherits his or her rights and obligations; and
  • with regard to the insolvency, the Bankruptcy Law (2006) recognises that the bankruptcy administrator may continue on behalf of the bankrupt enterprise to participate in arbitration proceedings that are started before the application for bankruptcy is accepted by the people’s courts.
Third parties – participation

Does your domestic arbitration law make any provisions with respect to third-party participation in arbitration, such as joinder or third-party notice?

The Arbitration Law includes no provision with respect to third-party participation in arbitration, such as joinder or third-party notice. These issues are predominantly regulated by institutional rules.

Groups of companies

Do courts and arbitral tribunals in your jurisdiction extend an arbitration agreement to non-signatory parent or subsidiary companies of a signatory company, provided that the non-signatory was somehow involved in the conclusion, performance or termination of the contract in dispute, under the ‘group of companies’ doctrine?

The doctrine of ‘piercing the corporate veil’ is admitted in court litigation, but not applicable to arbitration under Chinese law. Arbitral award rendered against a party by ‘piercing the corporate veil’ will be exposed to a high risk of setting-aside, or non-enforcement.

Multiparty arbitration agreements

What are the requirements for a valid multiparty arbitration agreement?

The issue of multiparty arbitration or consolidation of arbitration is often addressed by the arbitration institution’s rules of procedure.

For example, the 2015 CIETAC Rules contain a significant number of rules regarding multiparty arbitration as follows:

  • assumption of two sides only for each multiparty arbitration: there will be only two sides (ie, the claimant side and the respondent side) in a multiparty arbitration. If either side fails to jointly appoint or to jointly entrust the chair of CIETAC to appoint an arbitrator, the chair of CIETAC shall appoint all three members of the arbitral tribunal and designate one of them to act as the presiding arbitrator (article 29);
  • joinder of additional parties to the existing arbitration: during the arbitral proceedings, a party may apply to CIETAC to have an additional party join its side (article 18.5); and
  • consolidation of two or more arbitrations with multiple parties: CIETAC may decide to consolidate several separate arbitrations into one arbitration proceeding that was first commenced (article 19.2).
Consolidation

Can an arbitral tribunal in your jurisdiction consolidate separate arbitral proceedings? In which circumstances?

The Arbitration Law is silent on whether an arbitral tribunal may consolidate separate arbitral proceedings. This issue is left for the arbitration rules to regulate.

For example, under article 19 of 2015 CIETAC Rules, a party may apply for consolidation of arbitration proceeding, provided either of the conditions are met:

  • all of the claims in the arbitrations are made under the same arbitration agreement;
  • the content of arbitration agreements are identical or compatible and the arbitrations involve the same parties as well as legal relationships of the same nature;
  • the content of arbitration agreements are identical or compatible and the contracts involved consist of a principal contract and its ancillary contract or contracts; or
  • all the parties to the arbitrations have agreed to consolidation.

Law stated date

Correct on:

Give the date on which the information above is accurate.

30 November 2020